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Trust Deed Investing for New Investors and/or Retirees
For some people, the idea of taking risks with their hard-earned cash and putting it into an investment can be scary. For most of their lives, their strategy has been to place their cash reserves in a bank account with a low return on investment because they never wanted to risk losing their money and continue to save a part of your money each month.
Soon-to-be investors or people nearing retirement who now have access to their retirement funds should understand that every asset, including cash, carries a risk of gain or loss (inflation).
Not putting your money into higher-earning asset classes like stocks, bonds, or real estate can really set you back, but just because you’re taking on higher risk doesn’t mean you’ll lose the money you invest. However, not investing it and holding it in accounts that provide a low return may pose a greater risk, in terms of future purchasing power.
For example: Let’s say a retiree now has $1,000,000 for retirement and keeps it in a cash account at age 65. Now suppose this person is now 85 years old, what this person could have bought in 1994 for $1,000,000 would now cost him $1,750,000 in 2014. This person lost 40% of his money in terms of purchasing power. Which due to inflation is like having only $600,000 of the remaining $1,000,000. Use this to give yourself an example if you want to do the math with different numbers.*
Taking a bigger risk doesn’t mean you’ll lose all your money or even a little, it could just mean your return may turn out to be less than expected, which compared to little or no return, is still better. alternative That’s why it’s important to diversify your investment knowledge and understand the different forms of investment available, such as real estate trust deed investing.
DID YOU KNOW that you could invest your money in real estate without having to manage your own property, know a lot about real estate, or take on too much risk? Examples would be investing in a REIT, which is a company that sells units to unitholders (another word for shareholders) or bonds backed by the company’s portfolio of real estate properties. Another is to be a private mortgage lender through a broker who will find a safe property to put your money into, called a deed of trust.
Here’s an example of why trust deed investing is safe and how investing in this asset class would put you in a better position in the future, then I’ll show you how the numbers work.
Why is it safe?
1. All these properties are insured.
2. He will own the mortgage on the property and can sell the property to claim his money and the promised interest, if his interest is not paid back.
3. You are lending your money to an experienced professional rehabber or real estate investor, who most often has their own money invested as well.
4. The duration of the investment is comparable to that of a CD, from 6 months to 2 years at rates ranging from 5 to 7% ROI.
5. You have a broker who is appraising these properties on a professional level.
6. You can see the property, visit it and know what you are investing in.
Although you could alternatively learn how to offer these loans yourself, it is much more beneficial to go through a broker because you can find the possibility of choosing the wrong person to lend to, which brokers have filtered out over time. It’s not that you can’t get your money back after legal processes, which brokers know inside and out, it’s that you want to receive your monthly return as stipulated in the contract.
Also, a broker can create a higher return for you without running the legal risks of usury laws. These laws prevent someone from overcharging someone else on a loan that was made to them.
So let’s say this same retiree invested his $1,000,000 in trust deeds consistently over the past 20 years at a minimum rate of 5% and continued to reinvest half of his monthly interest profits. Today I would have over $2,700,000! This means that this person was making $2,500 a year which equates to $135 a month after taxes, and after 20 cumulative years they were still accumulating that much wealth. Although after a 35% tax deduction, it would come to about $2,000,000. Work the numbers for yourself at http://www.bankrate.com/calculators/retirement/roi-calculator.aspx
Here is a graphic showing an example in the original article. http://privatelending.org/why-not-taking-risk-is-a-big-risk-what-to-do-with-your-hard-earned-cash-in-2014/
We hope this article gives you a better understanding of the importance of taking risks and what risk actually is. It doesn’t mean you’ll lose your money, and it doesn’t mean you can’t get a higher rate and be conservative with your money. In any case, however, it is always best to diversify your portfolio across a variety of investments and seek professional advice and planning. Let me know what you think!
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